Why not let them do it?

Since 2008, central banks in industrial countries have adopted unconventional monetary policies to stabilize and stimulate their economies, wrote former Governor of the Reserve Bank, Prof Raghuram Rajan, "But now, with most major central banks apparently seeking to normalize monetary policy, we should ask why these extraordinary measures were used and whether they worked." After the financial crisis of 2007-08 banks stopped lending, so central banks reduced interest rates to encourage borrowing. When policy rates hit zero lower bound they resorted to purchasing securities, known as quantitative easing and signaled "low for long" interest rates. The problem, according to Prof Rajan, is that central banks "are prisoners of their inflation-targeting mandates". Which means that they have a mandate to target high inflation, but have no mechanism to reverse persistently low inflation. The resultant explosion in liquidity has resulted in asset price bubbles. "The IMF is part of the problem, as are major central banks, with respect to its embrace of monetary policy snake oil that delivers no growth but delivers on market instability and inequality," was the scathing comment by VA Nageswaran. What happens if asset price bubbles burst, resulting in another financial crisis? Central banks may resort to zero lower bound and quantitative easing, negative interest rates, set the inflation target at 4% so that they have plenty of room to set interest rates, or lower the inflation target to 0% so that they do not have to resort to unconventional policies when inflation falls, wrote Prof N Roubini. Unfortunately, there is no easy answer so they may have to resort to the same policies if there is another crisis. When a central banks lowers interest rate it weakens the currency, giving short time relief, but other central banks soon follow suit, canceling each other out, wrote Prof K Basu. As earnings from fixed income instruments drop people save more and reduce consumption. The only solution is for central banks to work in concert to avoid a "Nash equilibrium". If a 'Minsky moment' strikes China, Japan or the US, it would affect all three and even countries like India, wrote W Pesek. Central banks have been given charge of monetary policy but have no control over fiscal policies, which are decided by the government, but they are being blamed for the sluggish recovery of the global economy, wrote Prof B Eichengreen. Any attempts to curtail independence of central banks should be resisted. Former Federal Reserve Chair, Ben Bernanke recently said that coordination between monetary and fiscal policies is desirable, meaning control by governments. Asian governments have already begun to interfere in workings of their central banks, wrote W Pesek. If politicians do take over control of central banks they will be held responsible. Politicians do not like that.